Personal Finance Vocab Terms

Disability Insurance

A policy that insures a worker in the event of an occupational mishap resulting in the disability: compensates the injured worker for lost pay or provides income replacement due to inability to work from illness or injury.

Disposable Income

The amount of money available for spending and saving after taxes and essential living expenses have been deducted.

Dividend

Distribution of a portion of a company's earnings, decided by the board of directors, to shareholders. Dividends can be issued in cash or additional shares, providing a return on investment for shareholders.

401K

A retirement savings plan sponsored by an employer that allows employees to save a portion of their paycheck before taxes are taken out. Employers may offer matching contributions to enhance savings.

Adjustable rate mortgage

A type of mortgage where the interest rate may change periodically based on changes in a corresponding financial index, which can affect monthly payments.

Annuity

A financial product that provides a series of payments made at equal intervals, often used as a means of securing a steady income during retirement.

Appreciation

the increase in the value of an asset over time.

Equity

the ownership value in an asset after subtracting any liabilities or debts associated with it.

Excise Tax

A tax imposed on specific goods or services, typically included in the price of the product.

FDIC

a United States government corporation that provides deposit insurance to depositors in U.S. commercial banks and savings institutions.

Federal Reserve System

the central banking system of the United States, responsible for monetary policy, regulating banks, and maintaining financial stability.

Fiscal Year

A year used for financial reporting and budgeting, which may not align with the calendar year.

Fixed Rate

An interest rate that remains constant throughout the life of a loan or financial product, providing predictability in repayment.

Forclosure

The legal process used by lenders to recover the balance of a loan from a borrower who has stopped making payments. It typically involves the sale of the property used as collateral.

Garnishment

A legal process through which a lender or creditor can obtain a portion of a debtor's wages or assets to satisfy a debt, often following a court order.

Home Equity Loan

A type of loan where the borrower uses the equity of their home as collateral, typically having a fixed interest rate and providing funds for large expenses.

Home Owners Insurance

A type of property insurance that provides financial protection against damage to a home and its contents, as well as liability for injuries occurring on the property.

IRA

A retirement savings account that offers tax advantages for individuals to save for retirement.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Interest

The cost of borrowing money, usually expressed as a percentage of the loan amount, or the return earned on invested capital.

IRS

The U.S. government agency responsible for tax collection and enforcement of tax laws, including the administration of income tax in the United States.

Life Insurance

A contract that pays a designated beneficiary a sum of money upon the insured person's death, providing financial security for dependents.

Long Term Disability

Insurance that provides income replacement for individuals who are unable to work due to a disability lasting longer than a specified period.

Medicare

A federal health insurance program for individuals aged 65 and older, as well as for some younger people with disabilities.

Mortgage

A loan used to purchase real estate, where the property serves as collateral. Typically paid back over a long period with interest.

Mutual Fund

An investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.

Non Profits

Organizations that operate for a purpose other than making a profit, often focused on social, educational, or charitable goals.

Opportunity Costs

The potential benefits an individual misses out on when choosing one alternative over another. This concept is fundamental in economics and personal finance, as it highlights the trade-offs involved in making decisions.

Payroll Deduction

A method of deducting money directly from an employee's paycheck, often used for taxes, retirement contributions, or insurance premiums.

Philanthropy

The act of promoting the welfare of others, typically through the donation of money to good causes. Philanthropy often focuses on addressing social issues and improving quality of life.

Property Taxes

Taxes assessed on real estate properties based on their value, typically used to fund local government services such as schools, infrastructure, and public safety.

Renters Insurance

A type of insurance that provides financial protection for renters against loss or damage to personal belongings, as well as liability coverage.

Sales Tax

A consumption tax imposed on the sale of goods and services, often calculated as a percentage of the purchase price.

Short-term Disability

Insurance coverage that provides temporary income replacement for individuals unable to work due to a non-work-related injury or illness.

Social Security

A federal program that provides retirement, disability, and survivor benefits to eligible individuals and their families, funded through payroll taxes.

Take Home Pay

The amount of income an individual receives after all deductions, such as taxes and retirement contributions, have been subtracted from their gross pay.

Tax Deduction

An expense that can be subtracted from an individual's gross income to reduce taxable income, ultimately lowering the amount of taxes owed.

Term insurance

A type of life insurance policy that provides coverage for a Specified term or duration, typically paying a death benefit if the insured dies within that time frame.

Time Share

A property arrangement where multiple owners hold rights to use the property for a specified period each year, typically in vacation settings.

W-4

A form used by employees to indicate their tax situation to employers, determining the amount of federal income tax withholding from their paychecks.

Assets

Resources owned by an individual or entity that have economic value, which can be used to generate income or can be converted into cash.

Bankruptcy

A legal process through which individuals or businesses unable to repay their debts can seek relief from some or all of their obligations, often involving the liquidation of assets to pay creditors.

Beneficiary

An individual or entity entitled to receive assets or benefits from a trust, estate, or insurance policy upon the death of the account holder or policyholder.

Bond

A fixed income instrument that represents a loan made by an investor to a borrower, typically corporate or governmental, with an agreement to pay interest and repay principal at a later date.

Capital Gain

The profit earned from the sale of an asset, such as stocks or real estate, when the selling price exceeds the purchase price.

Commodities

Raw materials or primary agricultural products that can be bought and sold, such as gold, oil, or wheat.

Copay

A fixed amount paid by a patient for a specific medical service at the time of service, often in conjunction with insurance coverage.

Cosigning

The act of signing a loan or lease agreement alongside another borrower, guaranteeing their repayment, which helps them secure credit.

Credit Score

A numerical representation of a borrower's creditworthiness, calculated based on their credit history, payment behavior, and outstanding debts.

Credit Union

A member-owned financial institution that provides a variety of banking services, including savings accounts and loans, typically with lower fees and better interest rates than traditional banks.

Debt Consolidation

The process of combining multiple debts into a single loan, often with lower interest rates or more favorable repayment terms, to simplify payments and reduce financial burden.

Deductible

An amount that must be paid out of pocket before an insurance policy begins to cover expenses. It is typically associated with health, auto, or home insurance.

Deprectiation

The reduction in the value of an asset over time, often due to wear and tear, obsolescence, or market conditions. It is commonly used in accounting to allocate the cost of tangible assets.